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The Bank of England’s hawkish talk on a potential interest rate hike is “ill judged”, according to an influential business group, as new data points to continued sluggish growth in the UK economy.

A poll of more than 6,000 firms from the British Chambers of Commerce (BCC) showed that the balance of firms enjoying increased sales picked up slightly in the second quarter, with a balance of 23 per cent of services firms selling more.

However, forward-looking indicators were weaker, with the number of firms who say they plan to invest more falling.

Multiple members of the Bank’s rate-setting monetary policy committee (MPC) – including governor Mark Carney – have argued that firming wage growth will add to inflation in the medium term. Meanwhile, they argue that first-quarter economic weakness was only a temporary blip.

Suren Thiru, the BCC’s head of economics, said economic conditions remain “subdued” ahead of the next MPC meeting on 2 August.

The pick-up in domestic sales suggests growth improved in the second quarter, in line with economists’ expectations, but signs of a sustained upturn are limited amid falling business confidence, the BCC said.

Thiru said: “The Bank of England’s recent rhetoric around raising interest rates continues to look ill judged. With the UK economy seemingly stuck on a low growth path and inflation easing, it would be prudent for the MPC to provide greater monetary stability rather than undermining the UK’s growth prospects further.”

Economists expect GDP growth to rebound to a 0.4 per cent quarterly rate in the second quarter, according to consensus figures collected by the Treasury. In the first quarter growth slumped to 0.2 per cent.

Separate data to be published today by accountant BDO will show that firms’ output continued to grow in June, but at the slowest rate since December 2012.

BDO’s index, which measures UK business output, fell from a reading of 98.58 points in May to 97.29 in June, below the 100 mark which indicates the long-term growth trend but still above the 95 contraction mark. The index is based on data from the Confederation of British Industry, the Bank of England and IHS Markit’s purchasing managers’ indices.

However, at the same time the employment component of the index has hit record heights, tallying with an unemployment rate of 4.2 per cent at a four-decade low.

Source: City A.M.

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